E11-2 (Depreciation—Conceptual Understanding)
Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset
has an estimated service life of 5 years. An employee has prepared depreciation
schedules for this asset using three different methods to compare the results
of using one method with the results of using other methods. You are to assume
that the following schedules have been correctly prepared for this asset using:
(1) the straight-line method,
(2) the sum-of-the-years’-digits method, and
(3) the double-declining-balance method.
|
Year
|
Straight-Line
|
Sum-of-Years'-Digits
|
Double-Declining-Balance
|
|
1
|
$9,000
|
$15,000
|
$20,000
|
|
2
|
9,000
|
12,000
|
12,000
|
|
3
|
9,000
|
9,000
|
7,200
|
|
4
|
9,000
|
6,000
|
4,320
|
|
5
|
9,000
|
3,000
|
1,480
|
|
Total
|
$45,000
|
$45,000
|
$45,000
|
Instructions
Answer the following questions.
(a) What is the cost of the asset being
depreciated?
(b) What amount, if any, was used in the
depreciation calculations for the salvage value for this asset?
(c) Which method will produce the highest charge to
income in Year 1?
(d) Which method will produce the highest charge to
income in Year 4?
(e) Which method will produce the highest book
value for the asset at the end of Year 3?
(f) If the asset is sold at the end of Year 3,
which method would yield the highest gain (or lowest loss) on disposal of the
asset?
TUTORIAL PREVIEW
|
If there is any salvage value
and the amount is unknown (as in the case here), the cost would have to be
determined by looking at the data for the double-delining balance method.
|
File name: E11-2 Rembrandt.xls File type: .doc PRICE: $7
